Hello. This is Ashraf Laidi from CMC Markets and welcome to this edition of CantosCharts.

We are going to be looking at the Nikkei Index from Japan as the benchmark index of the Nikkei 225 weekly and then we're going to be looking at the USD/JPY weekly.

Basically here what is happening is that the Nikkei Index in Japan had been underperforming the S&P 500, the Dow and even the FTSE.

Really, one of the main reasons is that the JPY had been very strong and has been strengthening across the board, so it has been really hurting the exporters in Japan. But the formation here is, well, basically this formation some people may say that it is a head and shoulder formation. Basically, this is the head, this is a shoulder and this is the right shoulder even though really it's a downward formation. Whether you agree with this or not, not sure because some people say that the shoulders have to be around the same level horizontally speaking.

What is interesting here, what I would like to really talk about is that unfortunately we don't have this chart here, but if you look at the ratio of the Nikkei to the Dow Jones Index, or the Nikkei to the S&P, you will see that this ratio is really falling and basically what it is showing is that the Nikkei, relatively speaking, it is nearer the lowest level relative to the Dow to the S&P to the FTSE since December of last year.

The only reason that we saw an improvement in the Nikkei was when we saw a decline in the JPY. When the JPY started to become cheaper that was good for the Nikkei and actually we saw the Nikkei coming back down. So this is basically March. This is 2009 and you can see the Nikkei here is waking up and it's pushing higher as the JPY started to weaken.

So, basically, just before we go back to here, let's just talk briefly just about USD/JPY and this is what the JPY is doing against the USD. Part of the reason that this is really coming down hard here, which is really testing those 15-year lows that we saw around 85, part of the reason is because not only is this JPY strength, but it's USD weakness.

But we do not really expect the USD/JPY to stage any major recovery above this level above this 90 level, okay. So we do expect that any rebound, any rebound in USD/JPY is expected to be really a debt cut bounce, so to speak. It's going to be capped around 90 or 91 and then we're going to see further retreat here towards 85 and, yes, the JPY policymakers could come in and could try to talk down the JPY, but we think that's just going to be temporary and we still expect that the USD is going to weaken and the JPY is going to strengthen back towards the low 80s which takes us back to the Nikkei.

So any declines, or any temporary declines in the Nikkei, we think that they could see the Nikkei retest here at the 10,000 level. Sorry, any temporary declines in the JPY could see the Nikkei pushing back higher. But 10,300, the 10,300 level, which is around this level here, is really going to be the barrier and that's where we're going to see further downside on the Nikkei for people to want to retest this.

If you do believe in the head and shoulder formation here, if basically this is the head and you're going to see the neckline just around 9,600 right here and this is going to be 11,500, 9,500, so basically you really take off around 2,000 and you could really be probably be seeing as an interim target of around just below 8,000 round 7,500 level.

We know that this is a big move right here but these losses are not likely to transpire until the end of the third quarter of this year. So keep an eye on this. If you're going to see some rebound in the Nikkei it will likely to be capped around 10,400/10,500, but really the downside, because it is in line with further JPY strength and further uncertainty about the global economy, we could see this Nikkei coming back down towards the 8,000 level.

Ladies and gentlemen, this is Ashraf Laidi from CMC Markets and we hope you've enjoyed this edition of CantosCharts.